Starbucks Is The Company To Beat In India’s $30 Billion Tea Market

In India, consumption of tea is not a seasonal phenomenon; rather an obsession, where people drink “chai” (tea) at any time of the day, irrespective of the temperature. Indians can be found sipping tea from road side stalls, established eateries and at their homes across the country. Tea consumption occupies more than 79% share in the non-alcoholic beverage market, which is estimated to value more than $30 Billion (Rs 195,000 crores).

With a domestic consumption of over 911 million kilograms in 2013-14, this country is the world’s biggest consumer of “chai.” However, its per capita consumption, at 800 grams, is lower than many other countries such as the UK and Afghanistan (2 kg each) and China and Iran (1 kg each). Despite this consumption, the market for ‘chai’ by the year 2020 is expected to grow annually by 20-23% and is estimated to be three times the present size in 2017.

Given this size of the tea market and its potential to grow, India is witnessing a spurt in number of established companies and startups that are striving to offer varieties of this beverage, and to establish a foothold in tea retail outlets and consumption market at home.

Assortment of food and beverage that is available at Chai Point. Source: Chai Point

Retail Market

In January this year, Starbucks launched its global flagship tea brand Teavana in India. This is a U.S.-based specialty tea retailer and tea bar chain that Starbucks acquired for $620 million in 2012.Through Teavana, Starbucks has launched a number of varieties that include masala and mint, hibiscus tea with pomegranate pearls, black tea with ruby grapefruit and honey, and many others flavors, both in hot and cold varieties. In India, Teavana is positioned as a premium offering that is competing against a slew of home-grown start-ups such as Chaayos, Tea Halt, Chai Point, Tea Trails and Chai Thela.

To compete effectively against bigger and more established players including Starbucks, these Indian tea chains have raised venture funding over the past two to three years to set up tea cafes and kiosks. In 2015 Chaayos raised $5 million from investors led by Tiger Global. This was followed by Chai Point raising $10 million from Eight Roads Ventures, Saama Capital and DSG Consumer Partners. They have utilized these funds to create niche menu to attract middle class customers with a mix of affordable Indian snacks such as “Samosas” (a flour based deep fried snack), Egg Omelette, “Bun Maska” (a buttered bun) and “Maggi” (instant noodles), that can be served along with tea.

However, with 90% of consumers preferring coffee in cafés and restaurants, these enterprises have been fighting the perception of Tea as an “in-home” beverage. One big challenge that these retail startups face is to draw an audience that is used to consuming packaged crush-tear-curl (CTC) tea or dust tea at home, and convincing them to pay for a cup of tea when they can enjoy a cup of coffee (perceived as more premium and exotic) at the same price.

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